U.S. conservatives conspire to keep carbon economy of 1896

U.S. conservatives conspire to keep carbon economy of 1896

Obama’s state strongholds exemplify the disruptive new economy, and Romney’s strength lies in the bastions of agricultural, mineral and energy extraction and distribution.

It’s a given that whoever wins the presidential race will inherit impossible hyperpartisanship. This national division is said to go back to 2000, when the election ended in a tie between George W. Bush and Al Gore.

Yet if you look at the 2012 electoral map, you see how far it has veered from the one 12 years ago.

Southern states that Bush owned — Virginia and North Carolina — are now contested. Evangelical West Virginia and Arkansas, where Gore came close, now belong to Mitt Romney, America’s first Mormon nominee. President Barack Obama has built a bulwark in the old Republican manufacturing heartland — Michigan, Illinois, Pennsylvania, possibly Ohio — and on the coasts. Romney, the former governor of Massachusetts, builds his map out from Texas into the heartland.

If this year’s political map can be said to resemble that of any previous election, it is 1896, not 2000, and the parties this time are flipped. The victory of the Republican William McKinley over the Democrat William Jennings Bryan was the final round in a struggle between the pre-Civil War American economy — agrarian and localized — and an emerging economy based on centralized finance and commodity extraction.

This time, the emerging economy is built on knowledge-based innovation, and Obama and his wing of the Democratic Party are its torchbearers. The old economy, on the defensive, is centralized and reliant on banks, commodities and fossil fuels. Romney and the Republicans are its rear guard.

Party Hypocrisy

Obama’s state strongholds exemplify the disruptive new economy, and Romney’s strength lies in the bastions of agricultural, mineral and energy extraction and distribution.

Virginia and North Carolina are in play because they have knowledge hubs. West Virginia and Arkansas are still dominated by coal, timber, Tyson Foods Inc. and Wal-Mart Stores Inc. The post-bailout revival of the auto industry has led to innovation in the Rust Belt. The Detroit area is the clean-energy patent capital of the country, and Ohio is catching that wave.

Also reflected on the map are contradictions in the Tea Party movement, through whose portals Romney had to pass on his way to the Republican nomination. It says it favors a small federal government, but supports federal pre-emption of state food-safety laws and environmental regulations. It backs cushy state-tax breaks for new factories — until those factories produce wind turbines, solar panels or fuel cells. It favors taxing consumption, not incomes — until the consumption being taxed is fossil fuels.

The Republicans are united. They have mortgaged both their electoral arithmetic and their financial base to the incumbent economy, even as it loses competitiveness. (Established, but retrenching, industries are the most generous campaign donors. They have the most to gain from government protection against their challengers.)

The Democrats are unavoidably split. Obama has faced continuing challenges within his governing coalition from senators in old-economy strongholds, which commodity-and-carbon Democrats once owned — Montana (Max Baucus), Nebraska (Ben Nelson, who is retiring), West Virginia (Joe Manchin) and Louisiana (Mary Landrieu). The president’s increasing tilt toward sounding friendly to fossil fuels has been driven by the need to hold the loyalty of such carbon Democrats in order to govern, even though he is unlikely to grab many electoral votes in their states.

Obama’s signature environmental initiative — cap-and-trade climate legislation — had turned into a showdown with old- economy stalwarts, such as Exxon Mobil Corp., American Electric Power Co., Peabody Energy Corp. and the U.S. Chamber of Commerce.

Industrial Innovators

The battle is not between industries. Most sectors have innovators and incumbents. Take chemicals. When DuPont Co. determined that nylon and its other textile businesses had become low-profit commodities, it sold them to Koch Industries Inc. DuPont now focuses on high-tech, proprietary chemicals needed for solar panels — putting it on the opposite side of the policy trenches from Koch. (Koch even sued DuPont for $745 million, claiming it didn’t invest enough in maintaining its outmoded fiber factories.)

As a result, DuPont wants federal support for energy innovation, because that translates into markets for its solar chemicals. It doesn’t mind tougher regulation of toxic-chemical releases because its facilities are now modern enough to comply. DuPont is on the side of change — better environmental performance and less waste go along with more rapid turnover of technology and capital stocks. Koch is against higher standards. The change would strand the assets it acquired when it purchased DuPont’s old nylon-making factories.

Technology companies — whether in information, biotechnology or clean energy — are even more focused on disrupting established monopolies.

If the old incumbent capitalism was driven by commodity extraction, debt finance and all the lows — low costs, low wages, and low labor and regulatory standards — the emerging economy is powered by innovation and disruption. A company’s main assets are intellectual property; its balance sheet relies more heavily on equity, not debt; speed is of the essence. Companies don’t mind higher environmental standards or middle- class wages, as long as they don’t slow down investment and innovations.

Electric utilities are also split. A coalition of utilities that are less reliant on coal — PG&E Corp., Exelon Corp., Calpine Corp. and NextEra Energy Inc. — urged the Environmental Protection Agency to complete the cleanup of air pollution from outmoded coal-power plants, while slow-moving incumbents such as Southern Co., American Electric Power Co. and Luminant Energy Co. tried to hold on to their old facilities for another decade.

The innovative power companies applaud what the Obama EPA is doing — their sluggish brethren join Romney and Peabody to denounce Obama’s “war on coal.”

Democratic Split

Caught in the cross hairs are a set of heavy industries — steel, aluminum, paper, rubber, construction — and the unions that represent many of their workers. As Abraham Breehey of the International Brotherhood of Boilermakers pointed out to me at the United Nations climate conference in Bali in 2007, the issue for these players is not what technology makes steel, fires boilers or transports goods. A mining company such as Rio Tinto Plc is just as pleased to make money on rare earths for wind turbines as it is on coal. What these players need is investment certainty and economic dynamism.

Here the split among the Democrats hurts. Obama promised to generate hundreds of thousands of jobs on energy upgrades for homes and apartments, but his fear of opposition from Democrats representing big banking states such as New York, Connecticut and New Jersey allowed a shutdown of a program for financing clean-energy retrofitting. He didn’t deliver on an old-economy project either when he delayed the decision over the Keystone gas pipeline until after the election. So contractors and union construction workers, as well as the industries that supply insulation or steel pipe, had lost out twice.

The risk isn’t that the old 20th-century economy will prevail. New technology, depleted natural resources and climate risk guarantee that it can’t. The risk is delay. During the Gilded Age, new companies and industries injected huge sums into politics to accelerate the transition from the agrarian economy to the new world of monopoly finance and commodity extraction.

Today, that fading monopoly economy is spending millions of dollars to poison and divide America’s politics. The desired result — to slow and obstruct the new economy — is lethal for the future and indulges those invested in the nation’s past.